Chapter: 4 Basic Concepts of Taxation

TAX YEAR

1. Normal tax year

 Everyone Follows it .For Example Like Salary Person, Business Person.
 It is a period of twelve months (01 July to 30 June)
2. Special tax year
 Who give application to FBR for granting it.
 For Example Banking Sector, Sugar Mills,Insuarnce Companies.
3. Transitional tax year
 If someone have a gap of 2 tax years it has filled by Transitional tax year.
 Income:-
i. Any amount chargeable to tax under the Income Tax Ordinance, 2001 (e.g. income from salary)
ii. Any loss of income
 Heads of income
1. Salary;
2. Income from property;
3. Income from business;
4. Capital gains; and
5. Income from other sources
 Total income

 Person’s income under all heads of income for that tax year;

 Taxable income

Total Income other than exempt xxx

Less: Deductible Allowances (Discussed below) (xxx)

Taxable Income xxx

 Deductible allowances
i. Zakat, Workers Welfare Fund, Worker’s participation fund.
ii. These allownces are less by total income and these are not charged in Tax .

Taxpayer

Any person who pay an amount chargeable to tax under the Income Tax Ordinance, 2001.

 Computation of income tax payable……… (Imp)

Tax Liability = (Taxable Income x Rate of Tax) – Tax Credits / Tax reduction

 Tax credit allowed for,

Charitable donations ,Investment in insurance ,health insurance, pension fund ,Trust Welfare
Institution.

Method for determination of tax liability on total income (Computation Of Tax) ……… (Imp)
1) Normal tax regime (Net income basis)

Tax is charged on taxable income of the taxpayer i.e. gross amounts is charge reduced by deductions.

DEDUCTION ON PROFIT ON DEBTS

The amount of deductible allowance allowed shall not exceed 50% of taxable income or Rs. 2,000,000,
whichever is lower.

Deductible allowance for education expenses

The amount of an individual‘s deductible allowance allowed for a tax year shall not exceed the lesser of
a) 5% of the total tuition fee paid by the individual in the year;

b) 25% of the person’s taxable income for the year; and

c) an amount computed by multiplying 60,000 with number of children of the individual.

TRAETMENT OF RESEDENCIAL &non RESIDENTIAL PERSON FOR PAKISTAN SOURCE & FOREGIN
SOURCE INCOME

a person is present in Pakistan for a period of,183 days or more